Since Justin Trudeau became prime minister, the nation is expecting cannabis legalization to play out, and this opens up a new opportunity for investors everywhere.
The process might be fast-tracked since Trudeau sent a mandate to the Attorney General and Minister of Justice to implement recreational cannabis legalization. According to Matt Karnes of Greenwave Advisors, “The election of Trudeau will accelerate the timing of full legalization in Canada. We don’t think it is likely that there will be many hurdles in passing recreation legalization.”
One financial expert disagrees with this assessment though. Alex Brochstein is a CFA, a prominent marijuana industry analyst, and founder of 420 Investor, and he sees the process not happening quickly at all. “I expect the move to recreational legalization will take longer than many hope or expect as the leaders take their time to make sure it is done right. The federal government will need to work with provincial governments to fully implement the solution, which will elongate the process.”
Chris Horlacher is President and CFO of Jade Maple, a media and communications company catering to the cannabis industry, and he too thinks the process will be slower rather than quicker. “The process of ending cannabis prohibition is likely to be a long one. Before prohibition was enacted there were no Provincial authorities regulating its use. Unfortunately we’re not likely to return to that kind of environment and the Federal government isn’t likely to preempt the Provinces with its legislation. So we’re looking at a drawn out process involving bills being passed simultaneously at both the Federal and Provincial levels. A process that could very well take up to two years to craft, read, debate, and finally receive royal assent.”
The estimates made by Health Canada show that medical cannabis business could reach $1.3 billion by 2020, and the recreational side of the cannabis industry could be as much as $5 billion per year. With these expectations of growth, investors are becoming more aware of Canada’s marijuana as a sector with a lot of potential to make money with investments. Brochstein says that “I have estimated that the legal recreational market could conservatively be $2-4 billion based upon 35 million residents and assuming prices are $7 per gram or so, but I have seen higher estimates.”
While there are many different cannabis companies, the 26 licensed producers in accordance with the Marihuana for Medical Purposes Regulations (MMPR) have the biggest competitive advantage due to the fact that they already have infrastructure in place and it has all been extensively scrutinized by the government. The biggest of all the LPs is Canopy Growth Corp, they are publicly traded and currently have a market capitalization of $284.82 million CAD. It became the biggest LP under the MMPR after they acquired Bedrocan earlier this year. The company has 7,300 patients enrolled in their program and they have $7.7 million in cash which they can use to further expand their operations. The CEO of Canopy is Bruce Linton, and this is what he has to say on the company, “This is a unique opportunity and one we have been anticipating for a long time. It’s difficult to know which rules will pass from the current system as it evolves, but we feel that we’re in the pole position and still lean enough to excel under any regulatory model.”
Another one of the front runners in the LP space is Organigram Holdings Inc. which currently has a market capitalization of $38 million CAD. This company focuses specifically on selling only organic products to the customers. Organigram has over 2,000 registered patients and is working hard to build it’s brand. Organigram CEO Denis Arsenault comments on the future of the company. “We highly anticipate that the same regulations will be put in place for recreational as medical at the manufacturing level. The current system works in the eyes of Health Canada. We, as licensed producers, have learned the manufacturing process, have access to capital, and will be the first to supply the market. Those advantages will give us tremendous advantages initially.”
There are many other companies in the sector, and it is expected that many more will follow. As the legalization efforts play out in the nation, more and more investors will become interested as well as entrepreneurs. The cannabis industry is poised to become bigger than in the US, even though the population is much larger.